Cannabis broker fees and commission

How are cannabis business brokers paid?

Mostly by a success fee: a percentage of the price, paid at closing, and nothing if no sale closes. Around that core there may be a retainer, a minimum fee, reimbursable expenses, and a tail clause. No reliable survey of cannabis-specific fees exists. The figures below come from published guides to general business brokerage and M&A advisory, which is the market cannabis intermediaries price against. They are not the rates of any particular firm, and every term is negotiable.

Component	What it is	Published general-market range
Success fee	Percentage of transaction value, paid at closing	Flat 8% to 12% under $1 million; sliding scale above
Minimum fee	Floor on the success fee for small deals	About $10,000 to $25,000 for small businesses, per the same guide
Retainer or engagement fee	Upfront or monthly payment for preparation and marketing	From a few thousand dollars to more than $50,000 in the mid-market, per the same guide
Expenses	Third-party costs such as data rooms and travel	Pass-through; negotiate a cap
Tail	Fee still owed if you close with a broker-introduced buyer after the agreement ends	Advisors often propose 18 to 24 months

The Lehman and Double Lehman scales

A sliding scale pays a lower percentage on each additional million of price. The Lehman formula dates from the 1960s and was created by Lehman Brothers. The Double Lehman doubles each tier and is the version small and lower-middle-market sellers most often see.

Slice of price	Lehman	Double Lehman
First $1 million	5%	10%
Second $1 million	4%	8%
Third $1 million	3%	6%
Fourth $1 million	2%	4%
Everything above $4 million	1%	2%

Illustrative arithmetic. A $2.5 million sale on Double Lehman: $100,000 + $80,000 + (6% of $500,000 = $30,000) = $210,000, or 8.4% of the price. A $5 million sale: $100,000 + $80,000 + $60,000 + $40,000 + $20,000 = $300,000, or 6.0%. On plain Lehman the $5 million sale would cost $150,000.

Variants exist. Some advisors start the first tier at 12%. Others use a flat percentage with a bonus rate above a target price, which rewards the broker for beating a number you both agree is a good outcome.

What counts as “transaction value” in a cannabis deal?

This definition deserves more attention than the percentage. Cash at close is a small part of many cannabis sales; the rest is seller notes, buyer stock, earn-outs, assumed debt, and sometimes real estate. If the agreement charges the full fee at closing on all of it, you can owe a large cheque against a small wire.

Deal component	Question to settle in the agreement
Seller note	Is the fee on the note paid at closing or as principal is collected?
Earn-out or clawback	Is the fee paid only when and if the earn-out is received?
Buyer stock	Valued at what date and price? Is the fee payable in cash or partly in shares?
Escrows and tax holdbacks	Is the fee due at closing or on release?
Assumed debt and tax liabilities	Do they count toward transaction value?
Real estate	Is it inside the business fee, or handled separately by a licensed real estate broker?
Inventory and working capital	Included in value or excluded?
Consulting and non-compete payments	Counted or not?

Thompson Coburn’s guidance for sellers is that the client should pay a fee on contingent amounts only “when and if these amounts are actually received.” Advisors will push the other way. A common middle ground is full fee on cash and notes at closing and pay-as-received on earn-outs. The payment forms themselves are compared in cash vs stock vs seller note.

Retainers and upfront fees

Many small-business brokers work on straight commission. Advisors handling larger or more complex engagements increasingly charge an upfront or monthly fee, and cannabis has features that push in that direction: a sale timeline stretched by regulator approval, a narrow pool of eligible buyers, and real deal-failure risk from approvals and financing. If you pay a retainer, ask what it buys (a valuation, a confidential information memorandum, a buyer list) and get it credited against the success fee.

Tail clauses, exclusivity, and termination

Most sell-side agreements are exclusive for a fixed term and carry a tail. The tail protects the broker from a seller who waits out the term and then closes with a buyer the broker found. It becomes a problem when it is long or vague.

Points worth negotiating:

1. Length. Thompson Coburn notes that banks typically propose 18 to 24 months and that “six or nine months is sufficient” for most clients. With cannabis approvals running long, expect brokers to argue for the longer end.
2. Scope. The tail should cover only buyers the broker actually introduced, named on a written list delivered at termination.
3. Carve-outs. If you already have a buyer in mind, such as a partner, manager, or neighbour operator, exclude them or agree a reduced fee before signing.
4. Withdrawal penalties. Some agreements charge the full fee if you take the business off the market. Know whether yours does.
5. Termination. A right to end the engagement on notice, especially if the broker’s named lead leaves the firm.

Licensing and who can lawfully charge a fee

Two licensing questions affect whether a fee is even enforceable.

• State broker licensing. A number of states require a real estate broker licence to earn a commission on a business sale, particularly when a lease or real property is included. See business broker licensing by state.
• Securities. Selling membership interests or stock is a securities transaction. A federal M&A broker exemption, effective 29 March 2023, lets unregistered brokers handle changes of control in private companies with under $25 million of EBITDA or under $250 million of revenue, subject to conditions, as Goodwin explains. State securities laws still apply. This matters in cannabis because regulators often force deals into an equity structure; see asset sale vs membership-interest sale.

In cannabis there is a third check. Some states treat anyone with a right to a share of a licensee’s revenue or profit as a party needing disclosure. A success fee on a one-time sale is not normally that, but a fee paid over time from earn-outs or taken in equity might be. Raise it with counsel; the rules are in true party of interest and financial interest rules.

Questions to ask before you sign an engagement agreement

1. What is the fee scale, and what is the minimum?
2. How is transaction value defined, and when is the fee due on notes, stock, and earn-outs?
3. Is there a retainer, and is it credited at closing?
4. How long are the exclusive term and the tail, and which buyers does the tail cover?
5. Are you licensed where my business is located, if that state requires it?
6. Do you ever represent or take fees from buyers, and how is that disclosed?
7. Who will actually do the work?
8. What cannabis ownership-change filings have you worked through, in general terms?

Broader selection criteria are in why use a cannabis-specialist business broker, and the alternatives to hiring anyone are weighed in broker vs marketplace vs FSBO.

Is the fee worth it?

Measure it against net proceeds, not against zero. A fee earns its cost if a competitive, confidential process produces a better price, better terms, or a buyer who actually gets approved. It does not if the broker simply lists the business and waits. Ask how buyers will be found and screened before you compare percentages. Fees for a specific engagement are discussed on a confidential intro call. This page is educational and not legal advice.